You might think that if you have recently filed Ch. 13 bankruptcy that this will automatically disqualify you for a Parent Plus loan. Some parents even count on this, so their child can get more in the unsubsidized Stafford loan.
Well this is not always the case. I have found recently that Direct loans approves people who have a bankruptcy status because they do not consider it to be an adverse action on your credit report. I had a lengthy exchange with a very frustrated mom who searched for answers as to why she got approved for this loan when the terms of her bankruptcy clearly stated they couldn’t take on any more debt. To read the exchange click here.
Also keep in mind that I have found most FFEL lenders will not approve someone for a Plus Loan with a recent bankruptcy showing, so clearly they US Dept of Education and the private lenders do not use the same criteria for Plus loan approval.
Working on post about pros and cons of getting student loans. Your thoughts? Any links? Thanks!
Here’s a brief list.
Student loan pros
- Student loans allow you to afford colleges that you couldn’t pay cash out of pocket to attend
- Student loans, especially Stafford and PLUS federal loans, have fixed interest rates that, while not always the lowest, are predictable and easy to budget for
- The Stafford loan requires no creditworthiness, only eligibility based on the FAFSA, making it ideal for tough economic times
- PLUS loans and private student loans require creditworthiness but no demonstration of need, making them suitable for families that are too well off to qualify for need based aid but not well off enough to simply cut a check to the college
- Student loans, especially federal student loans, have a variety of flexible repayment options, including payments that scale with your income, along with deferment, forbearance, and consolidation
Student loan cons
- Student loans are largely non-dischargeable, even in bankruptcy, which means you’re stuck with them forever
- Student loans, especially federal student loans, can be collected via wage garnishment and a variety of other mechanisms that other loans can’t be, such as seizure of income tax refunds
- Student loans may not be the lowest cost of borrowing if you’re able to obtain good terms on other consumer loans like home equity loans
- Student loans can be far too easy to overborrow, especially for students who don’t have strong personal finance skills, graduating with massive amounts of debt in a few short years
- Student loans are convenient, which means that students may not pursue lower cost options for college such as aggressive scholarship searching or lower cost colleges
Ultimately, whether or not you borrow a student loan is a function of time. If you plan far ahead, if your parents plan far ahead, the chances are good you can attend college for very little money borrowed or no money borrowed. Students who have used our free college scholarship search eBook, Scholarship Search Secrets, have brought in tens of thousands of dollars each in scholarships, greatly reducing the cost of college. On the other hand, students who need funding as soon as possible find some success with our private student loans, at the cost of incurring debt that they’ll need to repay over the years ahead.
For those students who’ve defaulted on their federal students loans the price can be steep. Below are some additional consequences which may arise if your loans fall into default.
I’ve fielded many questions from concerned students of late regarding their federal loans and what happens if they default on them.
The questions have ranged from “can they withhold my transcript” to “can they throw me in jail for not paying?” In the first of my two blog series, Defaulted Student Loan Consequences, we shall get to the heart of the matter.
Potential Defaulted Loan Consequences
Your entire loan balance (principle and interest) may be due in full immediately
Your college records may be placed on hold
Your account may be turned over to a collection agency and you’ll have to pay additional charges, late fees and collection costs, all of which become part of your debt
Your federal and state income tax refunds can be withheld and applied to student loan debt. This is called a tax offset
You may not be able to obtain a professional license or get hired by an employer that performs credit checks
As we head into the warm summer months, many students will be turning their focus to seasonal employment, family vacations, and long days at the beach. Student loans rarely find a place on the summer checklist. I’d like to tell you that’s because students have squared away their financial affairs beforehand, but I don’t want to lie to you. Many students just choose to worry about it later, which can leave you scrambling in the fall. So before you engage in your mental holiday lets first take a quick look at the student loan process to make sure you are all set.
1. Make sure you’ve done your paperwork. All federal student loans like the Stafford loan require the completion of the FAFSA. If you haven’t done so, visit www.FAFSAonline.com for tips and suggestions on how to complete this important form and maximize your federal aid.
3. Determine who’s paying. For Stafford loans, the student is always the primary borrower and has the sole responsibility for repaying the loan after school. For PLUS loans, the parent is the borrower with the student having no legal responsibility to repay the loan. For private student loans, the student is the primary borrower while the parent serving as the cosigner; so while the parent has some obligation if the student doesn’t pay, it’s still principally the student’s obligation. For this reason, some parents prefer to borrow private student loans over PLUS loans.
4. Determine which is the better rate. Work out the numbers as to which of your borrowing options is going to be the best for you, both during and after school. Take a look at this example to see how private student loans and federal loans compare:
5. Apply for your student loans sooner rather than later. Financial aid offices have never been busier, so the sooner you can get your paperwork done, the sooner you’ll know what other financial aid options you’ll need to pursue. Here’s a handy, one-stop shopping page for you to get to every loan option available:
It is no surprise that the default rate on Federal student loans is the highest it has been since 1998. It can be kind of tough to make your monthly loan payments when you don’t have a job. With unemployment rising, so to is people’s inability to keep up with their student loan payments. The good news? You do have options if you can’t pay. To find out what your options are you first need to determine whether you have Federal loans or private loans or both.
If you are unsure what type of loans you have, be it Federal or private student loans, then you will need to do 2 things. First, you should check the national student loan database, which will pull up every Federal student loan you have ever borrowed. To access this database you will need your four digit FAFSA pin and your social security number. If you do not know your PIN number you will have to visit the Department of Education’s PIN site first. Once you have figured out what loans are federal, you may want to check your credit report to see if you have any private student loans. If you only got loans by filling out the FAFSA each year then most likely you do not have any private loans. To access a free credit report the best site is annual credit report.com. If you find that you have both federal and private loans, you need to deal with each type of loan separately. Federal loans are entirely separate from private loans, even if they are serviced by the same company.
So what are your options? For your Stafford loans, grad plus loans, and even parent plus loans, you have 2 main deferment choices: unemployment deferment and economic hardship deferment. You also have in school deferment options if you decide to go back to school. In order to apply for one of these options, you will need to either apply online at your loan servicer’s website, or you will need to download a form from their website and mail it in (you can get your loan servicer name directly from the nslds website). In school deferment forms typically need to be mailed in because they must be stamped by your school.
If you apply for a deferment and you are not approved, then you still have options. Forbearance is your next best bet, and you have up to three years of forbearance time with federal loans. Forbearance consists of putting your loan payments on hold. Interest will accrue on the loan and if you do not pay the interest during this period it will be capitalized no more than four times a year. This means that the interest accrued will be added to the principal balance and you will essentially be paying interest on interest. You can typically put your loans on forbearance simply by requesting one through your loan servicer. Remember that you have up to three years of forbearance time.
For private loans, deferment and forbearance options vary by each loan company, and typically provide less time than with federal loans. You should contact your private loan company to see what your options are.
If you currently have a federal loan or loans in default, and you can’t afford the monthly payments that the debt collection agency is demanding, you should call the US Dept of Education’s default center at 1800-621-3115. They can buy your defaulted loan from the agency and work out a rehabilitation program with you. If you just ignore your defaulted loan then eventually the government will garnish your paycheck and take your tax returns and part of your social security benefits.
I’d say at least half the people I speak with have no idea who their lender is. And honestly, until you graduate and need to begin making payments it doesn’t matter. Those loans are out of sight and out of mind. But when the time comes when you need to be fiscally responsible or place your loans in a deferment it certainly helps to know who to contact.
If you have federal loans, such as the Perkins, Stafford, or Plus loan there are three different ways you can go about ascertaining who your lender is.
1. If you have your 4-digit FAFSA pin number you can go to www.nslds.ed.gov and follow the prompts.
2. You can contact the Department of Education at 800-433-3243 and request to speak with the borrower tracking department
3. You can contact your school’s financial aid office.
If you have private student loans you can request a free copy of your credit report at freecreditreport.com or annualcreditreport.com. There you will see the names of your lenders listed.
I’m happy to say I don’t hear this claim often, about children forging their parents name on student loans, but I do hear it enough that I felt it was blog worthy. Parent Plus loan are probably the most victimized loan type.
The Parent Plus loan lists the parent as the primary borrower on behalf of the student. Students generally become familiar with the Parent Place loan when they see it listed on their Awards Letter from school. Awards letters generally outline work-study, scholarships, grants, and loans (such as the Stafford and Parent Plus loans), that students and their parents may qualify for.
Repayment on the Parent Plus loan does not begin until the student is out of school (this repayment change went into effect last summer), so the student could literally take out a loan in the parents name each year without the parent being the wiser until the bill comes rolling in after graduation.
If you fear your student has signed you up for a federal loan and want to check you may contact the Department of Education at 800-433-3243 and request to speak with the borrower tracking department. If you confirm that a loan has been taken out in your name you may contact the DOE’s Office of Ombudsman, as they help resolve disputes and solve other problems with federal student loans. They may be reached at 877-557-2575.
I’ve been feeling like the bearer of bad news lately. It seems every time I sit down to write a blog it’s about something negative going on in the market. And although this blog is no different, it does have a silver lining.
It was just announced last week that Sallie Mae, who provides 6 billion dollars per year in student loans, is discontinuing their private Signature loan product in favor of a short-term version that requires students to make interest only payments while in school. This is both good and bad news.
The good news is that a student will save thousands of dollars over the life of their loan as they will avoid negative amortization and will have a shorter loan term. The bad is that the borrower is still required to make monthly payments while in school.
The loan example that SLM likes to use is if a student borrows $17,000 over two years. For the first semester the student would be responsible for $40 per month, but that figure would rise each semester, reaching $160 by the second semester of the students sophomore year. After graduation the student would have a $328 monthly payment for six years. Under this new plan the student would repay about $28,000 total, opposed to the Signature loan program, which held a longer repayment term and would have cost about $45,000.
Still, while students “appreciate” the cost savings on the back end, is is the money on the front end that is the real killer. Not all students can afford to make payments while in school. For those students I am happy to report there are still options.
Fortunately not all lenders are forcing students to make payments while in school. If you are interested in taking out a private loan that still has a loan deferment benefit while in school (click here).
See, I told you I had a silver lining. I’m trying to shed my label as the grim reaper of student blogging.
At this time last year the prime rate, which is the benchmark widely used to determine the interest rate on a number of loans, was a respectable 6%. Today, that rate is a jaw dropping 3.25%, the lowest it’s been since 1955. To put that in perspective Dwight Eisenhower was our President, a first class postage stamp cost 3 cents, and Marty McFly was desperately trying to get back to the future. I guess the more things change the more they stay the same. But how can you benefit from a low prime rate?
Many private student loans are tied to the prime rate index, and since the prime is at historic lows the cost of borrowing is significantly lower than it has been in years. This fact has parents and students debating whether they should take out a private or federal student loan. Undoubtedly your qualifications and priorities will serve as your guide when making this important decision, but there are some key factors and benefits to consider during your deliberation process.
- No origination fees
- Interest rate ranging from ½ point below prime to 4.75 points above prime
- 2% cash reward on your outstanding principle balance at graduation
- Payments deferred until after school
-Fixed interest rate with predictable monthly payment
- Three years worth of deferment potential
- Loan Forgiveness for qualified borrowers
-Payments deferred until after school
Information provided by the Student Loan Network for general information purposes only.
As you can see, variable interest rates for private student loans start at 2.75% (because the prime is 3.25% and rates start 1/2 point below prime). However, the catch-22 for many Americans is that while this favorable rate exists it is not attainable.
Low interest rates are reserved for those with strong FICO scores, an endangered group which dwindles by the day. Millions of Americans have been defaulting on loans over the past 18-months sending their credit score into a damning abyss. A compromised credit score essentially disqualifies you from the most salutary interest rate in the market. And it’s not just the borrowers with a scar on their credit history that are facing new hurdles; the pinch is being felt across the board. Those with stellar credit are adjusting to new requirements as well.
Most lenders, regardless of the individuals credit score, are requiring a co-signer on all applications to protect themselves. But finding two credit worthy applicants is a harrowing task in today’s market, which makes federal loans the only realistic option for many desperate students.
Federal loans serve as a dynamite need-based option for those seeking funds for school. You don’t need a co-signer, and eligible students can actually qualify for more funds if their parent or guardian has poor credit. To qualify for a federal loan you must complete a FAFSA, and must also attend a qualified Title IV school. That said, federal loans do have a few drawbacks.
First off, the maximum yearly allotment is relatively small in relation to the cost of tuition, and will most likely only cover a fraction of the tuition cost. Next, the interest rate is fixed and can not be decreased for the life of the loan. Third, some lenders charge a 1% origination fee off the topic. And lastly, many feel the current Stafford loan rates, which range from 6% to 6.8%, are outlandishly high in this market.
As you can see each loan type has its advantages and disadvantages. Just be sure to do your homework before you sign on the dotted line. If you do you’ll be sure to ace your tests inside and outside of the classroom.
tough to make your monthly loan payments when you don’t have a job. With unemployment rising, so to is people’s inability to keep up with their 
of loans, was a respectable 6%. Today, that rate is a jaw dropping 3.25%, the lowest it’s been since 1955. To put that in perspective Dwight Eisenhower was our President, a first class postage stamp cost 3 cents, and Marty McFly was desperately trying to get back to the future. I guess the more things change the more they stay the same. But how can you benefit from a low prime rate?
Most lenders, regardless of the individuals credit score, are requiring a co-signer on all applications to protect themselves. But finding two credit worthy applicants is a harrowing task in today’s market, which makes